David Frum had written one of the most lucid pieces about Trump’s tariffs policy that I’ve read accompanied by a fascinating interview with economic historian Douglas Irwin that addresses many of our questions. (Gift link)I’ve been very confused by the way so many of the financial elites have reacted to this economic lunacy but Frum may have homed in on the reason someone like Scott Bessent and others of his ilk are going along:
You’re going to see the government having a much bigger role in economic life, picking winners and picking losers. One of the reasons that the United States moved away from tariffs as a way of funding the government back in the early 20th century was because it led to so much corruption as different interests bought their way into protection and favors from the United States government.
It creates privileged winners. And here’s one more thing it does, and this is maybe the most important of all: Once you see a tariff as a tax on those Americans least able to pay, it’s pretty hard to think of it as anything else. When the Trump people boast that they’re on their way to trillions of dollars of new revenue, understand that what they’re talking about is financing the tax cut for the rich that they passed just weeks ago in this one giant, big, boastful bill. And they’re going to offset a lot of those revenue losses that were given to the richest people in America by having a massive tax on the consumption of the poorest people in America. A tariff is a tax on the poorest people because it falls most heavily on goods.
Tariffs shift the burden of taxation onto the goods. They tend to fall most heavily on the least expensive goods, and they impose the greatest costs on those Americans who spend more of their incomes on goods, less on services, less on saving—those least able to pay. What we are seeing here is a massive redistribution of the fiscal burden of the United States, the tax burden of the United States, from those best able to pay [to] those least able to pay. And the whole thing is being mystified and disguised by appealing to people’s envy and spite and ignorance and mistrust of foreigners.
Low taxes and massive corruption? From the point of view of a wealthy robber baron it’s a win-win. Not so much for the rest of us.
Frum also speculates that one of the reason the markets haven’t reacted more strongly to the chaos is this:
[M]any investors are expecting the courts to strike down the Trump tariff program. In May of 2025, the United States Court of International Trade ruled that Trump had exceeded his authority by imposing all of these many different tariffs on his presidential say-so. And I think a lot of investors are betting that other courts, and ultimately the United States Supreme Court, will agree with the U.S. Court of International Trade that the tariffs exceed Trump’s authority. But if those bets are wrong, if the courts do—as they so often have done—appease Trump, accommodate Trump, go along with Trump, we’re going to be seeing a big shock, and soon and hard.
This is the second time I’ve heard this theory about waiting for the courts to strike down the tariffs. A few months ago I might have thought the Supremes would at least take the idea of blowing up the world economy more seriously than their need to allow the American monarchy to have unfettered power. If the financial and business elites are counting on that they are very likely whistling past the graveyard.
The interview with Irwin is super interesting too. It’s clear that none of us probably really understand trade very well but Trump’s lack of understanding is monumental.